IAS 1 establishes the requirements for presenting general purpose financial statements. It requires financial statements to include a statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows, notes comprising significant accounting policies and other explanatory information. IAS 1 aims to ensure comparability between financial statements of different periods for a reporting entity and financial statements of different entities. It prescribes eight overall considerations for preparing financial statements including fair presentation, going concern, accrual basis of accounting, consistency of presentation, materiality and aggregation, offsetting, frequency of reporting, and comparative information.

1. IAS 1: Presentation of Financial
Statements
By
Roshankumar S Pimpalkar
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2. Scope:
IAS 1 is applicable for all general purpose financial statements that are prepared in
accordance with International Financial Reporting Standards (IFRS). This Standard
does not apply to condensed interim financial information.
General purpose financial statements are aimed at users who do not have the
authority to demand financial reports that are tailored to their own needs. General
purpose financial statements must include:
a statement of financial position as at the end of the period
a statement of comprehensive income for the period
a statement of changes in equity for the period
a statement of cash flows for the period
notes, comprising a summary of significant accounting policies and other
explanatory information; and
a statement of financial position as at the beginning of the earliest
comparative period when an entity applies an accounting policy
retrospectively or makes a retrospective restatement of items in its financial
statements, or when it reclassifies items in its financial statements
Objective of IAS 1:
The objective of IAS 1 is to prescribe the basis for presentation of general purpose
financial statements in accordance with International Financial Reporting Standards
(IFRS). This ensures comparability with:
the entity’s financial statements of prior periods
the financial statements of other entities
Objective of Financial Statements:
provide information on the financial position, financial performance and cash
flows of an entity that is useful to a wide range of users in making economic
decisions
show the results of management’s utilization of the resources entrusted to it
Overall considerations:
IAS 1 prescribes eight overall considerations that need to be met when preparing
financial statements. These are:
1. fair presentation and compliance with IFRS
2. Going concern
3. accrual basis of accounting
4. consistency of presentation
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3. 5. materiality and aggregation
6. offsetting
7. frequency of reporting
8. comparative information
Let’s look at each consideration in detail
What happens in the exceptional circumstances when an entity concludes that
compliance with IFRS would be misleading?
In extremely rare circumstances management may conclude that compliance
with a requirement in a Standard or Interpretation of a Standard would be so
misleading that it would conflict with the objectives of financial statements as
set out in the Framework. In these circumstances an entity can depart from
the requirement if the relevant regulatory framework requires or does not
prohibit the departure.
But if the departure is prohibited then the entity must reduce the misleading
effects of compliance by disclosing three things
o the title of the IFRS in question
o the nature of the requirement
o reason why management has concluded that complying with the
requirement is so misleading
The adjustments to each item in the financial statements that is deemed
necessary to achieve fair presentation must also be disclosed.
Going Concern:
Financial statements must be prepared on a going concern basis unless
management:
intends to liquidate the entity or cease trading; or
has no realistic alternative but to liquidate the entity or cease trading
Any uncertainties about an entity’s ability to continue as a going concern should be
disclosed. When the financial statements are not prepared on a going concern basis
this fact must be disclosed, along with the:
basis on which they are prepared and
reason why the entity is not regarded as a going concern
Accrual:
An entity must prepare its financial statements under the accrual basis of accounting.
The only component of general purpose financial statement to which this doesn’t
apply is the statement of cash flows and notes to the statement of cash flows.
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4. This means that items are recognised as assets, liabilities, equity, income and
expenses when they satisfy the definition and recognition criteria for those elements,
as explained in the Framework.
Consistency:
The presentation and classification of items in the financial statements must be the
same from one period to the next unless:
1. the change is required by IFRS; or
2. there is significant change in the nature of operations of entity; or
3. A review of its financial statements indicates that a change in presentation is
more appropriate.
Materiality and Aggregation:
The rules to follow when considering whether items can be aggregated are:
1. each material class of similar items shall be presented separately in the
financial statements; and
2. dissimilar items shall be presented separately in the financial statements
unless the amounts are immaterial; and
3. immaterial amounts can be aggregated with other items
In this context information is material if its omission or misstatement could,
individually or collectively; influence the economic decisions of users taken on the
basis of the financial statements. Materiality depends on the size and nature of
the omission or misstatement judged in the surrounding circumstances. The
concept of materiality means that the specific disclosure requirements of IFRSs
need not be met if the resulting information is not material.
Offsetting:
Offsetting is the presentation of an asset and a liability (or group thereof) as a
single item on the statement of financial position.
Assets and liabilities can be offset only when offsetting is required or
permitted by another IFRS.
Items of income and expense can be offset only when an IFRS requires or
permits it.
The reporting of assets net of valuation allowances – for example, doubtful
debt allowances on receivables – is not offsetting.
Gains and losses arising from a group of similar transactions reported on a
net basis is not offsetting. For example foreign exchange gains and losses
arising on financial instruments held for trading purposes.
Comparative information:
Comparative information must be disclosed:
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5. in respect of the previous period for all amounts reported in the financial
statements, unless an IFRS permits or requires otherwise
for narrative and descriptive information when it is relevant to an
understanding of the current period’s financial statements
Reclassifying comparative amounts:
When the presentation or classification of items in the financial statements is
amended, comparative amounts must be reclassified unless the reclassification is
impracticable. Applying a requirement is impracticable when the entity cannot apply
it after making every reasonable effort to do so. When comparative amounts are
reclassified the following must be disclosed:
nature of reclassification; and
amount of each item, or class of items, that has been reclassified; and
reason for reclassification
When comparative amounts are not reclassified due to this being impracticable, the
following must be disclosed:
reason for not reclassifying the amounts; and
nature of the adjustments that would have been made if the amounts were
reclassified
IAS 1 requires that:
financial statements must be clearly identifiable
financial statements must be easily distinguishable from any other information
in the same published document
The following information must be prominently displayed in the financial statements:
name of the reporting entity and any change in that information from the date
of the end of the reporting period
whether the statements cover a single entity or a group of entities
date of the end of the reporting period, or period covered by the financial
statements
presentation currency
level of rounding used in the presentation of amounts
Financial statements should be presented annually. If they are not presented
annually there are specific disclosure requirements
Current and Non-current distinction:
An entity must present current and non-current assets and liabilities as separate
classifications on the face of the statement of financial position. An asset is classified
as current when it is:
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6. expected to be realised in, or is held for sale or consumption in, the normal
course of the entity’s operating cycle
held primarily for trading purposes
expected to be realised within 12 months after the reporting period
cash or a cash equivalent asset that is not restricted from being exchanged
or used to settle a liability for at least 12 months after the reporting period
All other assets should be classified as non-current. The operating cycle of an
entity is the time between the acquisition of assets for processing and their
realisation in cash or cash equivalents.
A liability shall be classified as current when it is expected to be settled in the entity's
normal operating cycle or held primarily for the purpose of being traded. It is also
classified as current if it is due to be settled within 12 months after the reporting
period, or the entity does not have an unconditional right to defer settlement of
the liability for at least 12 months after the reporting period. All other liabilities are
classified as non-current.
The difference between current asset and current liability regarding classification is
that in respect of asset first preference should always be given to the operating cycle
even if it is more than 12 months whereas in case of current liability both the
conditions operating cycle and settlement within 12 months should be considered,
satisfaction of either condition will lead to classification of liability as a current liability.
Statement of Changes in Equity should include
the total comprehensive income for the period, showing separately the total
amounts attributable to owners of the parent and to non-controlling interests;
for each component of equity, the effects of retrospective application or
retrospective restatement recognised in accordance with IAS 8; and
for each component of equity, a reconciliation between the carrying amount at
the beginning and the end of the period, separately disclosing certain changes
as prescribed by IAS 1
The notes to the accounts should include following information
the basis of preparation and accounting policies
additional information, if it adds to the understanding of the financial
statements
any information required by IFRSs that isn't disclosed elsewhere
a structure and cross-references to the face of the financial statement
An entity shall disclose information about the assumptions it makes about the
future, and other major sources of estimation uncertainty at the end of the
reporting period, that have a significant risk of resulting in a material adjustment
to the carrying amounts of assets and liabilities within the next financial year. In
respect of those assets and liabilities, the notes shall include details of:
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7. their nature, and
their carrying amount as at the end of the reporting period.
The assumptions and other sources of estimation uncertainty relate to the estimates
that require management’s most difficult, subjective or complex judgements.
Examples of the types of disclosures an entity makes are:
(a) the nature of the assumption or other estimation uncertainty;
(b) the sensitivity of carrying amounts to the methods, assumptions and estimates
underlying their calculation, including the reasons for the sensitivity;
(c) the expected resolution of an uncertainty and the range of reasonably possible
outcomes within the next financial year in respect of the carrying amounts of the
assets and liabilities affected; and
(d) an explanation of changes made to past assumptions concerning those assets
and liabilities, if the uncertainty remains unresolved.
for example: Disclosure of assumptions regarding discount rate.
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